Short-Term Gain vs. Long-Term Innovation and How It Hurt U.S. Auto Industry

With the fate of the U.S. auto industry in the balance, there's a growing belief that the automakers brought much of the current situation on themselves, with their stubborn refusal to develop smaller and more fuel-efficient cars. Until recently, they ceded that market to their Asian rivals, while they continued to focus on SUVs and pickup trucks.

Even now, U.S. automakers appear to be behind the curve on producing electric and battery-powered cars, a market in which foreign manufacturers like Germany's BMW and South Korea's Hyundai and startups like Silicon Valley's Better Place (led by former SAP executive Shai Agassi) have been more aggressive. Why haven't GM, Ford and Chrysler invested more resources in developing "greener" vehicles?

I think it's due in part to good, old-fashioned hubris. But there's a bigger issue, and it's one not exclusive to the auto industry. A couple of months ago, I pulled several articles discussing "Closing the Innovation Gap," a book written by former Cisco CTO Judy Estrin. I kept meaning to write about Estrin's book, but put it off time and again. Now seems like an appropriate time to revisit Estrin's contention that a focus on short-term profit is eroding America's reputation as an innovation leader.

Corporations focused on efficiencies and productivity started to make research more short term and tailored to the company's needs, with the result that most research done at corporations now is applied research.

That's dangerous because many innovations, such as the transistor, came from basic rather than applied research. As government R&D funding dwindled, most of the monies were allocated to life sciences and IT, while physical and environmental sciences have been shortchanged.

Companies seem to expect academia and start-ups to shoulder a larger R&D burden while they focus on solving a narrow set of specific problems. What most companies do today is "mostly development and very little research," says Estrin. She suggests that companies, not-for-profits and foundations need to devote more dollars to encouraging basic science research. She also recommends tweaking the R&D tax credit so it would focus solely on research.

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